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Understanding the Performance of Core Inflation in India

In: Studies in International Economics and Finance

Author

Listed:
  • Naresh Kumar Sharma

    (University of Hyderabad)

  • Priyanka Sahu

    (Ghani Khan Choudhury Institute of Engineering and Technology, Centrally Funded Technical Institute Under Ministry of Education)

Abstract

The present study aims to empirically understand the behaviour of core inflation in India. A measure of core inflation is developed, and it is empirically estimated for the time period of January 2012–December 2019 based on consumer price index data. Then, we study the response of core inflation with respect to certain macroeconomic variables. Autoregressive distributed lag model, and bound test approach is used for this analysis. It is found that cross-section price distribution in India is positively skewed. Therefore, core inflation series constructed through statistical approach based on asymmetric trimmed mean is considered to be appropriate. The findings of the study suggest superior performance of such measures of core inflation in describing the underlying inflation trend when compared with conventional exclusion-based approaches. Additionally, we find that—both in the short as well as in the long run—core inflation significantly responds to macroeconomic variables.

Suggested Citation

  • Naresh Kumar Sharma & Priyanka Sahu, 2022. "Understanding the Performance of Core Inflation in India," India Studies in Business and Economics, in: Naoyuki Yoshino & Rajendra N. Paramanik & Anoop S. Kumar (ed.), Studies in International Economics and Finance, pages 117-144, Springer.
    • Handle: RePEc:spr:isbchp:978-981-16-7062-6_7
    DOI: 10.1007/978-981-16-7062-6_7
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